The Hong Kong-based maker of financial software, whose 2007 initial public offering was underwritten by Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DBK) and which had 11 analyst “buy” ratings, was no match for investor skepticism. Shares slumped 31 percent in a two-day rout that left them at the lowest since March 2009. Yesterday, a day after Nasdaq trading was suspended, the company announced it wouldn’t file financial statements on May 23 as previously planned. It didn’t set a new date.

Longtop’s slide suggests that short-sellers’ allegations of accounting irregularities at smaller Chinese companies that bought their way into U.S. listings are now dragging down the market for larger Chinese IPOs. Renren Inc., a Beijing-based social-networking company, and the 11 other firms that completed offerings in New York this year posted an average offer-to-date loss of 6.3 percent compared with a 5.9 percent gain from all U.S. IPOs, according to data compiled by Bloomberg.

“It’s an integrity and confidence issue, and concern that there are these bad-apple companies taints the entire basket of Chinese companies, including those seeking to IPO,” said Rocky Lee, Beijing-based Asia managing partner for law firm Cadwalader Wickersham & Taft LLP, who has worked on more than a dozen U.S. listings by Chinese firms in the last year. “Even IPOs underwritten by major investment banks have felt the impact.”

Revoked Registrations

The U.S. Securities and Exchange Commission has revoked the registrations of eight China-based companies since December, and more than 24 firms have disclosed auditor resignations or accounting problems to the agency since March, SEC Chairman Mary Schapiro wrote in an April 27 letter. The SEC launched an investigation last year into Chinese companies’ use of reverse mergers, in which a closely held firm acquires one that’s publicly traded, enabling it to sell shares without the regulatory and investor scrutiny of an IPO.

Kevin Pollack, a fund manager at New York-based Paragon Capital LP who invests in U.S.-listed Chinese stocks, said companies planning public offerings in New York “face an unprecedented environment of distrust.”